Equitable estoppel differs from promissory estoppel in that whereas promissory estoppel requires a clear, unambiguous promise, equitable estoppel may be established by conduct alone.
To establish a claim of equitable estoppel, three elements must be established: (1) conduct which amounts to a false representation or concealment of material facts; (2) intention that such conduct will be acted upon by the other party; and (3) knowledge of the real fact.
The party asserting estoppel must show with respect to himself: (1) lack of knowledge of the true facts; (2) reliance upon the conduct of the party estopped; and (3) a prejudicial change in his position.
The 2007 case of 335 Second Street Housing Corp. v. Fridal Enterprises, Inc. involved a mortgage loan extension agreement that contained a no oral modification clause.
The agreement extended an existing mortgage loan for 5 years at a 7% annual rate of interest that increased to 9% after the first three years. The agreement provided for a further extension for another five years upon 30 days’ notice and payment of a 1% extension fee and with a further increase in interest to 14%. If the loan was not paid at maturity, the interest would go to 16%.
The borrower made interest-only payments at the contract rate as required by the agreement throughout the initial 5-year extension term. The borrower provided no notice of its intent to exercise the additional extension and paid no extension fee. After the expiration of the initial term, the lender continued to send invoices for interest at the 9% rate, and the borrower continued to pay them.
About four months after the expiration of the term, the lender sent a notice to the borrower indicating that the loan had matured and expressing its willingness to discuss an extension and modification of the loan. The letter also instructed the borrower to immediately call the lender to set up a meeting.
The borrower did not contact the lender to set up a meeting. Instead, the lender continued to invoice the borrower at the 9% rate and the borrower continued to pay. This went on for more than nine years.
At that time, the borrower requested a payoff letter in connection with a refinancing of the property to do renovations. The lender responded with a demand for the principal balance plus the 1% extension fee plus delinquent interest calculated at the difference between 9% and the applicable increased contract rates of 14% and 16%.
The lower court found in favor of the borrower and held that the lender was equitably estopped from claiming the delinquent interest and the extension fee. The court relied on the principal that the doctrine of equitable estoppel may be invoked where a lender’s actions have lulled a borrower into a false sense of security or where it would be inequitable to enforce certain terms of an agreement.
In affirming the lower court’s decision, the Appellate Division held:
“[T]he Supreme Court correctly determined that the defendant engaged in a course of conduct over a period in excess of nine years whereby it affirmatively billed the plaintiff at an interest rate lower than that authorized by the parties’ agreement, and acquiesced in the plaintiff’s payments at that rate without complaint, objection, or the declaration of a default. Moreover, the evidence submitted on the motions established that the defendant’s conduct induced the plaintiff’s reasonable belief that the higher rate would not be imposed, and that the plaintiff relied upon that conduct to its detriment in refraining from seeking a more advantageous financing arrangement. Accordingly, the Supreme Court properly granted summary judgment to the plaintiff on the basis of equitable estoppel.”